Company Perspectives:

Micron believes that quality values must be internalized at every level of the organization. Our approach to communicating and implementing these values is one of encouragement, education and training rather than policing. Ongoing education and individual support provide employees with the tools, confidence, and motivation they need to implement Micron's quality philosophy. The importance of these guidelines, and our commitment to quality, supports our overall mission: To be the most efficient and innovative global provider of semiconductor memory solutions.

Company History:

Micron Technology, Inc., is a holding company for subsidiaries engaged in the design and production of computers, semiconductors, and other related products. One of the few U.S. manufacturers to remain in the market for DRAM (dynamic random access memory) chips, Micron competed against formidable foreign competition during the 1980s, when the global semiconductor market rapidly expanded into a $20 billion industry by the 1990s. Having grown from a small operation in the basement of a dentist's office in Boise, Idaho, into an internationally recognized and respected manufacturer of memory chips, Micron entered the mid-1990s exhibiting robust growth, confounding those convinced that a comparably small player could not effectively compete in a market dominated by powerful foreign competitors.

Early Struggles

During the summer months of 1978, three design engineers left the employ of Mostek Corporation, a pioneer in the design and production of semiconductors, to join Inmos Ltd., a British-financed competitor. On the surface, the emigration of three employees to Inmos appeared insignificant--an unremarkable switch of employers by a small number of employees--but at Mostek tempers flared. These three engineers, Ward Parkinson, Dennis Wilson, and Douglas Pittman, were not the first employees to leave Mostek for better offers from Inmos. One former Mostek employee, in fact, had co-founded Inmos, and Mostek's management wanted to stanch the flow of additional employee departures, particularly if those employees were moving to Inmos. A legal battle ensued, with Mostek filing a suit against Inmos that called for a permanent injunction to stop further raids on its personnel. Mostek also attempted to enjoin Inmos from starting operations, but both of these demands were dismissed, including charges that the three engineers took trade secrets from Mostek to Inmos.

Caught in the middle of these accusations, the three engineers made the summer's squabble moot in October, when, led by Ward Parkinson, they decided to leave Inmos and start their own design and consulting company, Micron Technology. Incorporated that month, five days after Parkinson left Inmos, the company established modest operations in the basement of a dentist's office in Boise, Idaho, performing essentially the same work for the same people as they had before the summer began. All three had been working on a 64-kilobit (K) random access memory (RAM) program while at Mostek, and now, after the dispute between Inmos and Mostek, the three contracted to design a 64K chip for Mostek, Micron's first and, it appeared, only customer.

The company had been formed with the intent of serving only Mostek; Parkinson told Electronic News, a trade publication, "We are not looking for other customers." However, the idea of working for Mostek on an exclusive basis was short-lived, falling apart the following year when United Technologies acquired Mostek. United Technologies canceled the contract with Micron, leaving the fledgling company, entirely dependent on Mostek for revenue, without any customers. The three design engineers, later joined by Parkinson's twin brother, Joseph L. Parkinson, a Wall Street lawyer and eventual leader of Micron, decided to continue designing the 64K chip on their own and began looking for investors to finance their endeavor.

The first of Micron's many struggles, the loss of the contract with Mostek tested the company's commitment to manufacture semiconductor chips in a market dominated by leviathan Japanese electronic companies. Success in the memory chip market was essentially determined by size; the smaller the size of the chip and the greater the size of its memory capabilities, the greater the manufacturer's profits and market share. In this race for smaller chips and greater memory, a race predicated on technology, the Japanese were well ahead, rivaled only by large American companies based typically in California's Silicon Valley, the U.S. bastion for semiconductor research and production. Industry pundits and, more important, loan officers and venture capitalists strongly believed no new U.S. memory chip manufacturer could enter the market as late as 1979 and hope to succeed--certainly not a tiny company based in Boise, Idaho. Consequently, Micron's entreaties for financing were met with disdain. As Ward Parkinson later related to Forbes, his typical response from investors "wasn't 'no,' it was 'Hell, no'."

However, as was often true throughout its history, Micron's weaknesses were its strengths, or, more precisely, the company drew from characteristics regarded as weaknesses and used them to its advantage. With its decision to enter the memory chip manufacturing arena, Micron immediately inherited three weaknesses: its size, its location, and the late date of its entry into the memory chip market, all of which were adversely affecting its ability to secure financing. To solve this formidable problem, Micron drew upon one of its weaknesses, its location, and canvassed wealthy Idaho residents for an interest in Micron. There, at home, the company found success, enlisting the support of a machine shop operator, Ron Yanke, a wealthy sheep rancher, Tom Nicholson, and Allen Noble, a wealthy potato farmer--all Boise residents. Next came Micron's wealthiest supporter, John R. Simplot, a billionaire potato farmer and the largest supplier of potatoes to McDonalds. McDonalds in turn invested $1 million in Micron in 1980 and later poured tens of millions of dollars into Micron. With this distinctly Idahoan cadre of investors, Micron began operations, starting with $9 million in an industry that conventionally required at least a $100 million start-up investment.

Micron's location also served it well in other important areas that gave the company a much-needed boost in its transformation from a design and consulting firm to a manufacturer of memory chips. Land in Idaho was considerably cheaper than in Japan or in the Silicon Valley, which helped to reduce start-up costs. Labor was cheaper, and Idaho's hydroelectric power rates were roughly a third of those incurred by California memory chip manufacturers. With these advantages, Micron required less initial capital investment. In addition, its small size forced the company to closely examine the production methods currently employed by other manufacturers with the hope of identifying inefficiencies in conventional processes. This bare-boned approach to all aspects of the memory chip business enabled Micron to operate in an industry dominated by much larger and perhaps more complacent competitors, a cost-cutting approach that enabled the company to construct its first factory for $20 million, roughly one-quarter of the typical cost for a semiconductor manufacturing facility.

However, Micron could not control all aspects of the memory chip business. As Micron was effecting its transformation, Japanese electronic companies, such as Hitachi, NEC, and Fujitsu, had gained an early lead in the market for 64K DRAM chips, a key component of computers, video games, and telecommunications systems. By 1981, Japanese companies had secured 70 percent of the global market for 64K DRAM chips, without having to contend with any serious challenge from U.S. manufacturers. Finally, two U.S. companies, Texas Instruments and Motorola, began volume production of 64K chips the following year, whereas other American contenders, Intel, National Semiconductor, and Mostek did not begin production until late 1982. Before the year was through, however, the two strongest U.S. entries, Texas Instruments and Motorola, did not prove to be serious forces in the global market--Motorola's chip, derogatorily known as the "postage stamp," was large and, consequently expensive to manufacture, and Texas Instruments' chip suffered from temporary production problems in late 1982. For Micron, these developments were unfavorable because they strengthened Japan's grip on the market and kept worldwide attention, the attention of potential Micron customers, focused on Asia.

1982--84: Making Progress

As it turned out, what Micron lacked in financial backing and timeliness of product entry, it made up for in product quality and innovation. Micron shipped over one million chips in 1982, not by itself a noteworthy achievement when compared to the production totals of its competitors, but notable in the quality and size of its chips. With bigger, easier-to-read memory cells than competing chips, Micron's chips were more reliable and were also remarkably small, 40 percent smaller than Motorola's chip and 15 percent smaller than Hitachi's chip. In early 1983, Micron achieved a dramatic breakthrough when it further reduced the size of its chips, thus garnering the attention of semiconductor engineers and customers worldwide. Micron's 1982 chip measured 33,000 square mils (one mil equals of an inch), whereas the new chip measured 22,000 square mils, roughly half the size of Japan's leading chips and a third smaller than Texas Instruments' chip. As the size of Micron's chips decreased, so did the company's manufacturing costs, giving the company a significant advantage over its competitors and a springboard toward viability in the global semiconductor market.

The financial rewards of this innovation in memory chip production arrived the following year, in 1984, the same year Micron became a publicly held corporation. For the year, Micron earned $29 million in after-tax profit on revenues of $84 million, a profit-to-revenue ratio that ranked among the highest recorded by electronics companies worldwide. Micron used part of the proceeds from its success with its 64K chip to begin development of the industry's next benchmark semiconductor chip, the 256K chip, which the company began shipping in small quantities by the end of the year.

1985: Illegal Practices by Competitors

However, earlier in the year, significant developments in the semiconductor industry had occurred that promised to radically change the industry's future and Micron's position in it. In September of that year, when worldwide demand for chips exceeded supply, Micron drastically reduced the price of its chips, selling each for $1.95, well below the international list price of $3.40. It was a move to strengthen the company's position in the memory chip market at the expense of profit margins, a temporary maneuver to increase its customer base and undercut its competitors. At the same time, several major U.S. manufacturers, such as Intel and AMD, retreated from the fierce competition of the Japanese companies and into the high-performance, specialty chip market, where competition was less intense. Micron had decided to stay in the conventional chip market, and its price reduction was an indication of its intent; however, its strategy was not without precedent, a strategy the Japanese had been employing for a year.

For Micron, its price reduction was a way of increasing business, but the ploy was only temporary because undercutting competitors' prices impinged on profits, leaving Micron without money it sorely needed. For the Japanese companies, however, price reductions could be adopted as a long-term strategy because their large reservoirs of cash could withstand significant reductions in profits. This the Japanese companies did, dropping their prices, and forcing U.S. competitors to exit the market for memory chips. National Semiconductor suspended plans to market a 256K chip in 1985, Intel announced it was closing all of its RAM production during the fall, and United Technologies closed Mostek's operations the same year.

The effect of this aggressive pricing strategy was disastrous for Micron. In 1985, the price of 64K chips plummeted from approximately $4 to 25 cents, and the price of 256K chips fell from $20 at the beginning of the year to $2.50 by its conclusion. Micron's earnings aped this pattern, falling from $28.9 million in 1984 to $154,000 in 1985. For Micron the worst was yet to come. The company had to cope without half of its work force, which was laid off in the spring of 1985, and without one of its two production lines, which also fell victim to the pernicious downward swing of memory chip prices. In 1986, the company lost $33.9 million and generated $48.8 million in revenue, significantly less than 1985's total of $75.8 million.

Micron responded by formally accusing the Japanese semiconductor industry in 1985 of creating the collapse of the U.S. industry by illegally flooding the U.S. market with products sold below manufacturing costs, a practice commonly known as "dumping," and, several months later, in the fall, filed a $300 million antitrust lawsuit against six Japanese electronics companies. The result of these and other, repeated dumping charges against the Japanese led to the signing of the Semiconductor Trade Agreement between the United States and Japan in 1986, which established fair prices for Japanese memory chips and, according to Micron's management, enabled the company to effect a recovery.

1988--95: Market Fluctuations

Before the recovery, Micron recorded another dismal year, equally poor as 1986. The company lost $22.9 million in 1987, although total sales climbed to $91.1 million, but in 1988 both revenues and earnings recorded substantial leaps: revenues soared to $300.5 million and earnings jumped to $97.9 million, giving credence to the company's accusations of dumping. Now once again recording profits, Micron moved forward, still operating in a highly competitive market dominated by Japanese companies, something the Semiconductor Trade Agreement had not altered. Sales climbed to $446.4 million in 1989 and earnings increased modestly to $106.1 million. The following year demonstrated the volatility of the semiconductor market when the arrival of a nationwide recession caused sales to fall to $333 million and earnings to plummet to $4.9 million.

In 1991, Micron entered the personal computer market with the establishment of a new subsidiary, Edge Technology, Inc. Edge was created to manufacture personal computers at competitive prices. It was hoped that steady revenues from the PC division would help lessen the effect of fluctuation in the memory chip market. A year later, Edge Technology changed its name to Micron Computer, Inc.

During the recessive early 1990s, revenues recorded modest gains, rising to $425.3 million in 1991, then reaching $506.3 million the following year, but earnings remained deleteriously low, rising to only $6.6 million by 1992. That year, Micron canceled its plans to develop microprocessors and decentralized its operations, dividing the company into five subsidiary companies with Micron Technology, Inc., serving as the parent company and Micron Semiconductor, Inc., as the core operating unit.

In 1993, the semiconductor market once again demonstrated its volatility, but this time in a most agreeable manner, particularly for Micron shareholders. Revenues increased 63 percent, bringing the year's total to $828.3 million, but the most remarkable increase--a 1,470 percent increase--was recorded in Micron's profits, which soared to $104.1 million, nearly reaching the total generated before the recession in 1989. With profits on the upswing and global demand for semiconductors outstripping supply, Micron initiated a phase of rapid growth. The semiconductor division began a $60 million expansion, projected to increase output by 20 to 25 percent. Micron Computer likewise kicked off an expansion project, which would add a 100,000 square foot manufacturing facility in Idaho and 1,200 new employees. The company's stock rose sharply, achieving a 200 percent increase during 1993.

Still, the semiconductor market was booming. In response to growing demand for memory chips, in 1994 Micron announced plans to build a new $1.3 billion manufacturing complex in Utah. That same year, the company acquired PC manufacturer ZEOS, merging it with its Micron Computer and Micron Custom Manufacturing subsidiaries to become Micron Electronics. The new subsidiary hit the ground running; within two years, Micron Electronics had doubled the capacity of its Idaho operation, and added two new facilities in North Carolina and Malaysia.

1996--98: Oversupply and Shrinking Profits

After three highly profitable years, Micron again fell victim to the vagaries of the market. Beginning in late 1995, a glut of memory chips started a price spiral that was to severely damage Micron's profits. During the company's fiscal 1996, chip prices fell 75 percent, shaving $250 million off the company's record profits of the previous year. Faced with thinning margins and resulting shareholder unease, Micron suspended construction on its Utah fabrication plant.

The next two years proved to be no better. Chip prices dropped another 40 percent in 1997 and 60 percent again the following year, leaving Micron with a 1998 year-end loss of $233.7 million. Despite financial woes, the company expanded its operations in late 1998 with the acquisition of Texas Instruments' memory division. Management was banking on the belief that memory chip prices would rebound--and that when they did, the newly bulked-up Micron would be prepared. "The additional wafer fabs, joint-venture relationships, Singapore assembly and test operation, royalty-free patent cross-license, and favorable TI financing create an opportunity to further reduce our cost of manufacturing and position us as one of the world's largest DRAM producers," Micron president and CEO Steve Appleton said in the company's 1998 annual report.

In 1998, Micron attributed 46 percent of its revenues to memory chip sales and 48 percent to its Micron Electronics division's sales of PC systems. By the middle of the company's fiscal 1999, however, sales of computer systems had dropped off, making up only 36 percent of total sales. Sales of memory chips made up more than 60 percent of total revenue. As Micron charted its future, then, much appeared to depend upon the volatile memory chip market. To offset this dependence somewhat, the company was planning further diversification efforts, which focused on businesses that either enabled memory technology or served to promote consumption of semiconductor memory.